I came across this Healthcare services company called Viemed Healthcare a couple of months back. I was intrigued by the business model of renting out ventilators and other durable medical equipment (DME) while also selling such equipment. Apart from providing rental services and selling medical equipment, Viemed does sleep apnea tests. The moment I realized that the company is giving ventilation services to COPD patients in their homes and how cost-efficient it can be, prompted me to scrutinize the company as a whole. The story of Viemed is genuinely a growth story, and it has grown at a rate of 22% since 2015. The operating and profit margins have been consistent and have remained in a healthy range, which is intermittent and rare for companies providing healthcare services. The core strength of Viemed lies in the fact of how efficient they are with the equipment and their operations. Viemed has a utilization rate of nearly 90%. It consists of a unique aspect to its business model where it refurbishes the used machines and tries to reuse them to further increase its revenue from ventilator rentals. Even the cost of goods sold as a percentage of income is significantly lesser regarding Viemed's model. Even the company's operating margins are close to 10-12%, compared to 4.5% for the domain operating in the US. Keeping all this aside, there is another thing that differentiates Viemed Healthcare, which is concerned with how it has grown over time. The company's growth has been primarily organic, and it has no significant debt or leases. The amount of debt is just 2% of the firm's total capital, whereas the average debt is nearly 23% of the total capital for all the healthcare services companies in the country. All the growth and reinvestment have been done using the revenues and profits, which also explains why they do not pay out dividends.
In this high-interest and low-growth environment, one should invest in inflation and recession-proof companies. No industry is entirely immune to almost no real growth and high inflation, but the products and services offered can make a huge difference. A company like Viemed Healthcare is a company that provides products and services with decent demand despite the extreme macroeconomic situation. Viemed is clearly in the growth stage of its corporate cycle and is expected to continue investing in improving its services and consistently widening its physician network. I have tried my best to analyze Viemed Healthcare and attach a value to it, using a discounted cash flow analysis and intrinsic valuation multiples. The implied share price comes out to be US $8, and it currently trades at $ 5.4. The $8 value is according to the base case scenario, and in my opinion, the value is probably much closer to $ 11-12. You can find the equity research report and the valuation spreadsheet below:
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